My Fool Investment Standings for October
Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In my commentary, I have reviewed nearly 50 stocks as potential opportunities, and have invested in three of the stocks I have covered: Freeport-McMoRan (NYSE: FCX), Atlas Pipeline (NYSE: APL), and Pilgrim’s Pride (NASDAQ: PPC). My general investing strategy can be found here, and is based on dollar-cost-averaging. Of the stocks I have followed, some have done well, others, not so much. So, how do things stand as of the close of business on Oct. 12th?
Of my investments, the one which stands out - for its woes - is Pilgrim’s Pride, which I had featured in May. My initial investment was in August, after a drought fuelled summer. I want to see how rising feed costs have lowered earnings, due Oct. 24th, before deciding whether to add to the position. The movement of the stock over the previous month suggests few are willing to hear what executives have to say. The stock is trading below its nadir in August, having experienced what amounts to panic selling. All meat and dairy companies, big and small, are feeling the pressure. So far, one small poultry producer in the U.S. has succumbed to Chapter 11, with the second-largest producer of hogs in Canada pushed into receivership as well. The fact that Pilgrim’s Pride experienced bankruptcy back in 2008 only adds to investor doubts going forward. Analyst expectations of $0.07 don't help as I suspect they will wildly miss the mark, but anything close (or positive) will probably be viewed as a relief. However, I suspect this damage will linger for another couple of quarters, because the last time rising costs ate profits, it took a year for the company to return to profitability.
Freeport-McMoRan Copper has behaved the opposite of Pilgrim’s Pride and has held status quo. Whereas Pilgrim’s Pride is hurt by rising costs, Freeport-McMoRan should benefit from inflationary pressures on copper and gold prices, as driven by QE3. The stock was one the first group of stocks I covered, and therefore one of the first I invested in. The company experienced a poor Q2, as weak copper prices and falling demand for both copper and gold hurt the bottom line. Copper prices look to have stabilized over the past 12 months, while gold has been pressuring a $1,800/oz ceiling for the same period. It will be important as stable or rising prices can offset any fall in demand for metals. Freeport-McMoRan has been active in reducing its debt, with $4.5 billion in cash to $3.5 billion in debt. The company also offers alternatives to copper and gold, such as cobalt, but monetizing it remains the challenge. I will add to this position over time.
Atlas Pipeline was another early feature, and operates in the “defensive” energy sector. Its dependency is in Natural Gas prices, and these have been steadily rising since April, much to Atlas' benefit. The company had an excellent Q2, reporting an EPS of $1.30 compared to estimates of $0.20, this was also well ahead of the prior year Q2 of $0.50. Q3 earnings are set for Oct. 31st, and estimates of $0.25 look conservative given summer action in Natural Gas prices, plus Q3 was the strongest quarter last year. The company recently announced a doubling of capacity at its Waynoka processing plant. Atlas could be viewed as a sketchy investment due to its high debt load and no cash. The company recently priced $325 million of Senior Notes due 2020, which will go toward rolling some of the existing debt the company carries. On the positive side, the 6.4% dividend yield is attractive in a low yield environment. The only thing missing is a solid breakthrough above $36 a share. I will also look to add to this position over time.
Of the stocks I have covered, and have no stake in, but has been a big disappointment, is Penn Virginia (NYSE: PVA). It is another Natural Gas play, but where Atlas Pipeline did a Senior Note Offering, Penn Virginia instead sold 8 million common shares at $5, plus $100 million of depositary shares. The net effect of the common stock sale was to kill the stock price, on a massive dilution of the float (currently 42 million shares). The funds raised were to be used to pay off debt under a revolving credit facility. This left the stock down 33% on its feature price. Unfortunately, for a company which was relatively headline light, it now finds itself in the headlines for the wrong reasons. Some look for a silver lining, but I suspect it will be a number of months for the stock can find a “fair price” to account for the dilution.
fallond has positions in Freeport-McMoRan Copper & Gold, Atlas Pipeline, and Pilgrims Pride Corp. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.